By: Patrick Courrielche

What should an experienced journalist do when faced with an obvious misquote? Well, apparently resort to name calling and condescension. That is what Charlie Gasparino has done while recently attempting to defend his misinterpretation of Meredith Whitney’s municipal default call.

A few days ago I wrote an op-ed for the Daily Caller entitled Charlie Gasparino: You Owe Meredith Whitney an Apology. I had felt for months that Gasparino had been misquoting statements made by Meredith Whitney regarding municipal bond defaults. In a 60 Minutes segment entitled The Day of Reckoning, reporter Steve Croft told the story of the precarious financial condition of state and local governments that would inevitably lead to the next financial crisis. The main argument of the segment was that state and municipal debt was putting enormous pressure on local governments. All of the interviews were compelling, but it was Whitney’s comments that would ignite a media firestorm.

When asked how this new financial crisis could manifest, Whitney offered, “There is not a doubt in my mind that you will see a spate of municipal bond defaults. You can see 50 sizable defaults. Fifty to 100 sizable defaults. More. This will amount to hundreds of billions of dollars worth of defaults.” And to add a time horizon to its initiation, she offered (emphasis added), “It’ll be something to worry about within the next twelve months.” Nowhere did she mention that the defaults would all occur within a year timespan. But that didn’t stop Charlie Gasparino from modifying her statement ever so slightly to claim Whitney said loses would occur “over the next year.”

I didn’t think much when I first saw Gasparino making this error. Then I saw him do it again, and again, and again, and again, and again, and again. This misquote became the core of his criticism against Whitney’s call. It was his litmus test, if you will, to distinguish whether her prediction was accurate or not.

Then Whitney stated in a recent interview with Maria Bartiromo that the municipal defaults would be a “multiyear issue.” Gasparino attributed the statement (rightfully in my opinion) to his reporting, and he further dug in his heals by claiming that she had flip-flopped on the issue – moving on to Bartiromo as well, claiming that he wouldn’t put up with the “BS” that Whitney was conveying to the CNBC anchor. His reporting felt less like analysis and more like bullying – with a sprinkling of old employer vendetta.

That is when I challenged Gasparino to provide a Whitney quote that clearly backed up his “over the next year” position. His response through a 1,285-word piece provided no such quote, but instead resorted to some off subject right wing conspiracy theory. “The Right Picks Up Meredith Whitney’s Frayed Banner” was his headline, where he referred to her supporters as “right-wingers” – a loaded phrase for a site like the Huffington Post.

Fox Business decided to host Reason Magazine writer Tim Cavanaugh to debate the FBN reporter on a post Cavanaugh published that supported my misquote accusation. During the debate, Gasparino employed the “it’s not just me,” defense in an attempt to justify his false time horizon. He claimed that “every investor, every portfolio manager, every analyst” also held his position – rhetoric that can easily be proven false.

Strangely, given that Gasparino’s HuffPo rebuttal appeared to primarily be directed at me, I wasn’t contacted to participate in the debate. Yet my challenge affected him enough that he decided to tussle with me on twitter shortly after the broadcast.

The exchange was, unfortunately, rather juvenile. A business reporter from a serious network (admittedly one of my favorites) decided to first try condescension, then changed the subject all together by claiming “ur obviously new to reporting” – but still not answering my challenge, which he hasn’t to date.

He offered up a Whitney interview on December 21, 2010 as proof that Whitney meant the defaults would all occur in 2011. “One more reason you might want to attend a j-school in Missouri; if you want I’ll alert them,” he claimed with a link to the interview. I’d previously watched this particular segment many times and knew Whitney’s words did not back up his position. When I pointed this out, Gasparino responded, “listen to what whitney said in her own words; u actually owe me an apology[.]” I again pointed out that in the information he provided, Whitney never stated the defaults would occur within 12 months. His response: “why didnt [Whitney] correct [Bartiromo].”

And there it was – Gasparino didn’t have the Meredith Whitney quote to support his claim. Now he was trying to base his argument on what he viewed as a non-correction. But even in the course of the interview he sited, Bartiromo never clearly stated that the defaults would all occur within 12 months. So Gasparino was using a non-correction, to an ambiguous comment, by someone other than Whitney herself, to back up months of aggressive reporting. With such a loose connection, he can hardly claim that he holds himself to the same precision standard he applies to Whitney. And for that matter, exactly why has Gasparino (and others) been so obsessed with Whitney’s 60 Minutes interview when the muni bond market had been experiencing a sell-off for approximately 6 weeks at the time of her interview broadcast? But I digress.

I could see where Gasparino went wrong, but he was wrong nonetheless. When I attempted to end the discussion by providing links to all of Whitney’s post-60 Minutes interviews, which were incidentally all absent the quote he had been using, Gasparino looked to change the topic again by stating, “you exhibit…the reason there is so little good reporting coming from the conservative media.” He changed the subject again and moved back to insults.

The reason why Gasparino’s misinterpretation of Whitney’s quote is important (besides accuracy) is simple – it sets up a false litmus test. If his over the next year test were to stick in the minds of retail muni investors, many may look to reenter the market once his erred standard gives a false positive. That’s why I needed to call him out on his misstep.

Defenders of the muni market have been using flawed arguments during times of instability for decades, a fact of which I detail in an upcoming short story entitled The Muni Syndicate. It most notably occurred in the mid 70’s.

In 1974, New York City’s budget was in dire straits. Due to many factors, the media and investors in New York City bonds were beginning to question the city’s ability to pay it’s debts. Late in the year, the Mayor and City Comptroller issued a statement taking issue with a New York Times article that claimed the city was “near-bankrupt”. Their goal was to reassure bond investors that the city’s budget problems, although challenging, were not insurmountable. “While we agree that your catalog of worrisome fiscal problems should have positive value in producing public understanding of the city’s budget-making dilemma, your unfortunate use of the word ‘bankrupt’ may create unwarranted fears for the safety of their investments among the city’s bondholders.”  The two public officials prophesied (emphasis added), “Bankruptcy means that liabilities exceed assets or that credit obligations cannot be met – a situation in which the City of New York, even in the darkest days of the Great Depression, never has found itself, nor will it.”

But the bondholders weren’t buying the spin. As word got out to investors, the city’s ability to sell bonds began to dwindle. Adding a devastating blow to the city’s ability to issue bonds, Standard & Poor’s suspended its rating for New York City bonds on April 2, 1975, concluding that, “[T]he absence of a stream of current revenues to meet all financial requirements, possibly including debt service, has presented us with a unique and unprecedented problem, giving us no choice but to take this position until remedial action is more evident.”

Two days later, another muni bond defender, famed salesman James Lebenthal of Lebenthal & Co., ran an ad in the New York Times with the boldfaced headline, “THE SECOND SAFEST INVESTMENT IN AMERICA.” The advert claimed that, “general obligation bonds – including New York City’s – are the second safest investment in America – second only to U.S. Government bonds.” On the same day, the State of New York advanced the city $400 million in aid – narrowly beating a deadline to pay millions in debt coming due.

With the city careening closer and closer to insolvency, the state turned to the White House for a rescue. “Ford to New York: Drop Dead,” read the famed October 29th Daily News headline referencing President Ford’s veto stance on any bill calling for “a federal bailout of New York City.” Then in mid-November, the unthinkable occurred. New York State passed legislation imposing a three-year moratorium on the repayment of $1.6 billion in city notes. With the moratorium, the mayor & comptroller’s prophecy at the onset of the crisis would be completely debunked – and James Lebenthal’s “SECOND SAFEST INVESTMENT” ads would become a laughing stock.

The Ford Administration would eventually bailout New York City, and the state’s highest court would rule the moratorium unconstitutional – but bondholders would have to wait over twelve excruciating months for the verdict. Defenders of the muni bond market look at this event as a validation, but few holding muni bonds at the time would claim unquestioned confidence in the market. It would later be discovered in an SEC investigation that those within the muni syndicate were clearly aware that the city was near financial collapse during the entire ordeal.

Few of Whitney’s detractors discuss in detail the striking similarity of the present climate to what happened in 1975 – and Charles Gasparino is included in that lot. Defenders are speaking of the unbreakable nature of the municipal bond, while demand for bond issuance is drying up and Washington is proclaiming there will be no local government bailout – just as in 1975. Through his nuanced modification to Whitney’s message, not only is Gasparino misrepresenting her statements, he’s performing a disservice to the bond investors he purports to be defending by creating a faulty litmus test for reentry into the market.

But the story that has been lost, and many have failed to explore, is that Whitney’s 60 Minutes declaration was partially qualitative due to the fact that, in her words, “The lack of transparency with the state disclosure is the worst I have ever seen.” Discussions regarding state and municipal debt often feel more qualitative in nature because the data is extremely outdated and murky – a condition even Warren Buffett has alluded to. But if the defenders of this market have anything to say about it, full transparency will remain elusive. Unfortunately, that discussion is not currently the primary focus.

Which leads me to my apology to you, Mr. Gasparino. I have never met Meredith Whitney nor profess to be on the side of her prediction. But by watching your approach with her and Maria Bartiromo, then sitting on the receiving end myself, I unfortunately let myself be pulled into the same headspace. It made me lose sight of what should have been my primary focus – the flaw in your analysis. Upon entering the discussion with you I chose to bully the bully, then got pulled into a scene from Mean Girls during our twitter exchange. I would have rather focused on trying to convince you that, by creating a false litmus test, you were hurting those same bond investors that you purport to be defending. And for that I apologize. I’ll try not to resort to your snarky, bullying tactics again. Wait…was that snarky? My mistake. Sorry Charlie.





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    […] any or many municipalities or municipal utility districts will default. But Patrick Courrielche is highlighting a wrinkle from history: When Jerry Ford bailed out New York in the 1970s, the city never […]

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    The Irish politicians who’ve meekly accepted yet another bank bailout have done something I would never have dreamed possible – they’ve made Gerry Adams look good! Seriously it’s disgusting what’s happening there.